Difference between Token and Coin: Features and Functions
We say it all of the time; but, it's true. We here at CryptoDetail love getting questions from our readers. Among the most asked questions is - what is the difference between coin and token?
It seems that newbies, and many old-timers, here in the crypto sphere do not understand the all-important difference in those two terms.
The simplest and most basic explanation here is that a coin is a currency, and a token is either a utility piece of investment. Those simple facts cannot be intertwined and must not be confused when considering the difference between coin and Token. There is NOT a crypto coin meant to be an investment or meant to be used in a utility fashion. Coins are CURRENCY. Therefore, the only use of crypto coins is money. Likewise, tokens are not meant to be used as money. Tokens are coded with smart contracts to perform a specific function.
Difference between Coin and Token in Cryptocurrency: Background Data
To get that more in-depth look, we have to go back to where all stories begin. In 2008 the crypto sphere was born with the release of the Bitcoin Whitepaper. Shortly after that, Bitcoin itself was born. Bitcoin was the first crypto coin. As it is well explained in the Bitcoin Whitepaper, Bitcoin is a coin, a currency. As such, it is intended to be used as money. Since the birth of that first crypto coin, there have been many other coins to follow. Ethereum, Dash, Litecoin, and Monero (to name a few) are also crypto coins. All of those cryptocurrencies (also known as "coins") are, just like Bitcoin, meant to be used as money.
While your standard fiat bank account is based on Dollars, Pesos, Euros, or Rubles (or the fiat currency controlled by your particular country), crypto coins are a bit different.
Sure, crypto coins are meant to be earned, traded, spent, and saved (in the crypto sphere, we call this HODLing (Hold on For Dear Life)); these purely electronic coins are more like a PayPal account than a traditional fiat account. Why? Well, like PayPal, a crypto wallet (where your coins are held) is not backed by a stack of dollar bills (or, insert your country's currency here). So, you have an open ledger telling you your balance. You can add to or send from this balance. But it is all electronic with no paper money involved or needed.
Unlike PayPal, there can be no reversals, chargebacks, fraud, or deception. There are no "frozen" accounts. Your wallet is your wallet. There is no third party in control. We have discussed quite a few of those coins here on CryptoDetail. However, there is one that is special.
What makes Ethereum special?
What makes ETH (which is the common name for the Ethereum coin) special? Well, again, we have to dig deeper. Most crypto coins are based on a sophisticated computer code that determines the amounts and placement of those coins on their blockchains. Each coin has its blockchain (an unchangeable public ledger that shows the birth and journey of every piece of every coin that lives on that ledger. Bitcoin has its own. Dash has its own. and so on). However, the ETH coin creators gave us a new gift in their coin's code; the Smart Contract.
A Smart Contract is an extra piece of code built into the Ethereum blockchain that allows other coders to create new projects, each with its crypto, all built on top of ETH.
So, is it all built on top of ETH? That's right. Those cryptos constructed on top of the ETH blockchain are not crypto coins. Those are tokens. Since ETH invented the Smart Contract allowing for these tokens, a couple of other crypto coins have mimicked that idea. However, as the creator, the Ethereum blockchain is where nearly every Token of value lives.
What do those tokens do? You can't but should answer this question to understand the difference between token and coin. The answer is - any number of things. The ETH Smart Contract allows us, as coders, to create unique tokens that are mostly extensions of the Ethereum Smart Contract. For example, some tokens are as simple as an access pass, allowing us to enter a website to become a part of a community. Other tokens contain Smart Contract codes that automate the entire crypto to fiat loan systems. Some tokens include highly sophisticated AI systems. More than one Ethereum Smart Contract based Token lets us play video games and have fun.
It is all very fascinating. But the main point about the difference between a crypto coin and a Token is that a token can be whatever a coder wants it to be, all because of the freedom and "magic" of the Ethereum Smart Contract.
Coin and Token Difference: Key Points
The simple difference between coin and Token in cryptocurrency is that crypto coins are no different than any other form of money we can spend online. In contrast, tokens are computer programs that give us the ability to do almost anything.
The deepest coin and token difference are that this question (what is the difference between a coin and a token?) is that crypto tokens are to be used as investments (think of them as "stocks" or "shares" in a fiat, Wall Street sense); while coins are not intended to be investments.
Regardless of the token and coin difference; the real point we here at CryptoDetail want to impart to all of our readers is that both coins and tokens are precisely what Satoshi Nakamoto had in mind when he first wrote the Bitcoin Whitepaper. These coins are here for us all to be able to acquire and use without any outside interference from any third party. Banks, governments, and payment platforms are the dinosaurs of money past.
Likewise, tokens give us all free access to back the companies in which we believe. Whether we use a utility token or get a few "security" tokens in an airdrop, or even if we purchase those same security tokens in presale, the point is that obtaining, HODLing, using, and trading tokens helps those projects grow.
Like we here at CryptoDetail always say, What is right for one crypto project is suitable for the entire crypto sphere.
Thanks for joining us for this exploration! Good luck on your crypto journey!! Happy HODLing!!!